Fund managers have been accused of neglecting the needs of retail clients and catering to the institutional market.
Members of a panel discussion at the Money Management Asset Allocation Seminar in Sydney have pointed to the use of sneaky marketing campaigns that try to make financial advisers believe a particular fund manager uses active asset allocation when in fact they do not.
The investment director of Investors Mutual Limited, Anton Tagliaferro, said retail and institutional investors had very different needs, but that fund managers were only catering to one of these client segments.
"You have a retail investor, who has very specific needs, who says 'don't lose me any money, try and make me some money when the markets are going up and always give me an income'," Tagliaferro said.
"Then you've got the institutional investor who is basically obsessed with benchmarks."
The reason why retail investors and planners are disappointed with the returns, Tagliaferro added, is because fund managers track the index to attract the institutional investor.
"Financial planners give their money to a fund manager – everyone's got their spiel about being active and providing value – and then you look at most fund managers' portfolios and they've got 30 per cent in resources, 25 or 30 per cent in banks…just like the index," he added.
Co-managing director of Ibbotson Associates Australia, Daniel Needham, said the funds management industry faced a structural problem.
He said he believed the outcome for the investor was not the primary concern of the business that is managing their funds.
"It's effectively an industry that's dominated by a very short-term focus on relative performance versus, for example, a poorly constructed market capitalisation weighted index," Needham said.
According to Needham, business people with no history of running fiduciary businesses end up driving the major decisions for clients.
"You may have a CIO or a portfolio manager, analyst or strategist who wants to do the right thing by their investors, but unfortunately they're not able to do it," Needham added.
"They only need to be wrong for a few quarters and they're out of their job and so, I think that's a very dominant force in our industry."
"I think the more these large financial institutions start to buy financial planning businesses, the bigger the risk becomes," he added.
